Antitrust Law Daily Exclusive dealing arrangement not shown to have anticompetitive effects on market as a whole
Thursday, August 18, 2016

Exclusive dealing arrangement not shown to have anticompetitive effects on market as a whole

By Jeffrey May, J.D.

A hospital that focuses on heart, lung, and vascular disease failed to adequately allege anticompetitive effects on a relevant market to support its challenge to an exclusive dealing arrangement that reduced the number of cardiac patients transferred to its facility. The U.S. Court of Appeals in Philadelphia ruled that a plaintiff, who asserts actual anticompetitive effects to prove a Sherman Act, Section 1 violation, must, absent evidence of market power possessed by the defendants, show anticompetitive effects on the market as a whole as opposed to a small subset of that market. Therefore, summary judgment in favor of the defending cardiology group and local a hospital operator was affirmed (Deborah Heart and Lung Center v. Virtua Health Inc., August 17, 2016, Roth, J.).

In order to prove its claim, Deborah Heart and Lung Center had to establish that the challenged arrangement’s probable effect was to substantially lessen competition in a defined relevant market. The complaining hospital, which is located in southern New Jersey, alleged that the exclusive dealing agreement harmed competition because it forced some consumers associated with the defending cardiology group and the local hospital that did not perform cardiac surgery to obtain advanced cardiac interventional (ACI) procedures, such as angioplasties, at Penn Presbyterian in Philadelphia.

According to Deborah, following the exclusive contract with Penn Presbyterian, only 30 percent of the cardiology group’s transfers went to Deborah, down from approximately 85 percent. Seventy percent of the transfers went to Penn Presbyterian. Deborah contended that, in a competitive market, the patients would have chosen Deborah.

The appellate court explained that an antitrust plaintiff can show anticompetitive effects in two ways: (1) by showing "actual anticompetitive effects, such as reduction of output, increase in price, or deterioration in quality of goods and services," or (2) by showing the defendant has "[m]arket power—the ability to raise prices above those that would prevail in a competitive market," which is "essentially a surrogate for detrimental effects."

Deborah identified two relevant markets in which to assess anticompetitive effects: (1) emergency ACI procedures in three New Jersey counties and (2) nonemergency ACI procedures in those three same counties, plus two more New Jersey counties, and parts of Philadelphia.

Because the relevant market included multiple hospitals and hundreds of cardiologists, Deborah could not argue that the cardiologist group and local hospital, which did not perform cardiac surgery, had sufficient market power as a stand-in for proof of actual anticompetitive effects. Thus, Deborah had to show actual anticompetitive effects. Deborah did so only in reference to a small subset of patients, namely, the cardiologist group’s patients and those patients who appeared in the local hospital’s emergency room. The appellate court rejected Deborah's argument that this was sufficient proof because it need not show anticompetitive effects in the market as a whole, so long as it shows more than a de minimis effect on competition in the market. Without evidence of the defendants' market power, a plaintiff cannot satisfy the anticompetitive effects element of a Section 1 claim, unless it shows anticompetitive effects on the market as a whole. Effects on a small subset of that market were not sufficient, the court ruled.

The case is No. 15-2032.

Attorneys: Anthony Argiropoulos (Epstein Becker & Green, PC) for Deborah Heart & Lung Center. James J. Ferrelli (Duane Morris LLP) for Virtua Health Inc. and Virtua Memorial Hospital Burlington County. Robert V. Dell’Osa (Cozen O’Connor) for The Cardiology Group, P.A.

Companies: Deborah Heart & Lung Center; Virtua Health Inc.; Virtua Memorial Hospital Burlington County; The Cardiology Group, P.A.

MainStory: TopStory Antitrust DelawareNews NewJerseyNews PennsylvaniaNews

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